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June 14, 2012

For Retirement, Is 67 the New 65?

OECD retirement report says increasing the retirement age can help nations manage pension costs as life expectancy rises

Increases in retirement ages are under way or planned in 28 of the 34 OECD countries, according to the OECD's Pensions Outlook 2012.

As life expectancies worldwide keep rising, countries around the globe may want to consider lifting the retirement age so they can continue to pay for national pension plans, the Organization for Economic Cooperation and Development said in a report.

Life expectancy at birth is expected to rise by more than seven years in developed economies over the next 50 years, the OECD says. The long-term retirement age in half of all OECD countries will be 65, while in 14 countries it is expected to range from 67 to 69. Increases in retirement ages are under way or planned in 28 of the 34 OECD countries, says the group’s Pensions Outlook 2012, published on June 11.

“Breaking down the barriers that stop older people from working beyond traditional retirement ages will be a necessity to ensure that our children and grandchildren can enjoy an adequate pension at the end of their working life,” said OECD Secretary-General Angel Gurría in a statement. “Though these reforms can sometimes be unpopular and painful, at this time of tight public finances and limited scope for fiscal and monetary policy, these reforms can also serve to boost much needed growth in aging economies.”

Headquartered in Paris, the OECD provides a forum for countries around the world to compare policies and identify best practices.

Eurozone countries are already coming face to face with the stark realities of retirement ages versus life expectancy, writes Financial Times columnist Gideon Rachman as he considers a proposal for a Europe-wide bank deposit insurance scheme. “As a senior Dutch politician who shares the German view, puts it: ‘We cannot push through a banking union when the French have just cut their retirement age to 60 and we have raised ours to 67,’” Rachman writes.

In countries including the U.S., Germany, Ireland, South Korea and Japan, large segments of the population can expect a major drop in income upon retirement because public pensions are relatively low and private pensions voluntary.

The OECD urges governments to formally link retirement ages to life expectancy, as Denmark and Italy have done, and to make greater efforts to promote private pensions.

“However, making private pensions compulsory is not necessarily the answer for every country,” the OECD says. According to the report, such action could unfairly affect low earners and be perceived as an additional tax. It views auto-enrollment schemes, such as those used in U.S. 401(k) plans, as a suitable alternative.